Roth IRA Conversion 2010: Should I Convert My 401(k)?

A WSB listeners wants to know when it makes sense to convert your 401(k) to a Roth IRAA Roth IRA allows non-deductible, after-tax contributions of up to ,000 per year. As long as you hold the IRA for at least 5 years, the distributions are tax free. In addition, you are not required to make a minimum contribution each year, and there is no age limit for additional contributions. The Tax Relief Act of 1997 created the Roth IRA..

Q: I have a question on Roth IRA conversions. But, first I wanted to say thanks for a great explanation on your radio show recently concerning using umbrella coverage versus buying liability coverage with investment property.

My wife and I have several 401(k)s from previous employers ranging from $100,000 to $250,000 each. I would like to convert one or all of these 401(k)s to Roth IRAs but don’t have the liquidity to pay the necessary taxes.

We have significant carry forward losses associated with rental property that is held in our names. Is it possible to use those carry forward losses to offset the taxes that would be due on a Roth Conversion?

A: I’m not sure if you can use the tax loss on rental property to offset 401(k) to Roth IRA conversions.

Typically, you’d be talking capital lossA Capital Loss is the loss taken on the sale of stocks, bonds, real estate, or other assets. versus income and those don’t necessarily offset each other. But because it’s a more complicated question, please call your tax preparer or an enrolled agentAn Agent is an individual who acts on behalf of a consumer. A real estate agent represents a buyer or a seller in the purchase or sale of a home. Licensed by the state, a real estate agent must work for a broker or a brokerage firm. An insurance agent helps a consumer purchase an insurance policy. Insurance agents are also licensed by the state. to make sure you’re making the best decision.

As for conversion, I don’t necessarily think you should convert everything. Yes, income taxes are going up. But you can manage that by taking out cash as you need it rather than pushing your marginal tax bracketA Tax Bracket is a range of income which must pay a certain level of taxes. The higher your income, the higher your tax bracket, and the more tax you pay. all the way up now.

Read Dan Solin’s piece on Roth IRA conversions:. He makes the case for converting your 401(k) funds – or not converting them.

And, thanks for the kind words about the show.

Read More About 401(k)s and Roth IRA Conversions:

Converting Your Conventional IRA to a Roth IRA

Roth IRA Conversions

New Changes For Roth IRAs

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